One Big Thing
Whenever we tip into crisis mode, people tend to focus on the big, almost-always temporary numbers. For example, at one point OpenTable restaurant bookings dropped to zero in the US and TSA checkpoint data fell to almost nothing as did hotel revenue. These numbers are all at some stage of recovery now, albeit slowly and unevenly. What I find far more interesting are the marginal, often relatively small changes that tend to be more permanent, or at least take far longer to revert to the historical norm. While the big numbers get the headlines and shock value, it’s often the smaller, more permanent changes that lead to larger economic consequences over time. From The Economist (emphasis added):
The pandemic’s effect on office space is less clear. Many workers may find that they quite like working from their bedrooms or kitchens. Others say they miss the camaraderie of the office. Social distancing may also force firms to spread out more, reversing a trend that saw office space per employee fall by half in a decade. If the net effect were a reduction in rented space, it could cause havoc. Victor Calanog of Moody’s, a rating agency, calculates that if tenants in New York gave up even 10% of their space over the next five years, it could result in a halving of rents sought on vacant properties.
First off, this is NOT saying that office demand will drop 10% in NYC over the next five years, but rather illustrating what would happen to rents IF it did. Second, this is an illustration that everything happens at the margins. Only a small percentage of commercial real estate space turns over every year (lease expirations, move outs, etc). The vast majority remains occupied. Therefore, seemingly relatively small changes in demand (and supply) can cause out-sized movements in rental rates.
What I’m Reading
Here Today, Gone Tomorrow: Pop up retail, which was surging in popularity before the pandemic hit, has a level of flexibility that makes it built for this environment.
Compromise: Pickup is gaining ground on delivery as restaurants and grocers find it to be less of a hassle and easier on the bottom line than expensive delivery options.
Risky Business: JPMorgan analyzed data from 30 million Chase cardholders and Johns Hopkins University’s case tracker and found that higher restaurant spending in a state predicted a rise in new infections there three weeks later. In-person restaurant spending was “particularly predictive” while higher spending at supermarkets predicted a slower spread of the virus.
COVID 15: Apparel shoppers are finding that they need to buy larger clothes after stress eating and sheltering in place, boosting both sales and returns.
High Stakes: After months of pandemic-inflicted shutdown, a legal battle over who’s responsible for rent was inevitable and fashion brands and their landlords are taking each other to court. The outcome for any of these cases will set a precedent for the whole industry.
Chart of the Day
More capital is being allocated to real estate.
At the same time, returns are trending downward.
Source: The Economist
Cooling Off: A Louisiana man was arrested for jumping into a Bass Pro Shop fish tank in an attempt to go viral on Tik Toc.
Like Lemmings Off a Cliff: A drunk woman crashed her pickup truck after picking up a drunk friend who crashed his pickup truck because Georgia.
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